What is burn multiple — and what's a good one in 2027?

Direct Answer

Burn multiple is the single cleanest measure of capital efficiency in a venture-backed software business: Net Burn divided by Net New ARR. If you burn $4M in a quarter and add $2M of net new ARR, your burn multiple is 2.0 — meaning every $1 of new recurring revenue cost you $2 of cash.

Lower is better. In 2027, anything under 1.0 is exceptional, 1.0–1.5 is good, 1.5–2.0 is OK, 2.0–3.0 is suspect (where most growth-stage SaaS actually lives), and above 3.0 is a red flag investors will not ignore.

TL;DR

• Formula: Burn Multiple = Net Burn / Net New ARR. The denominator includes expansion minus churn, so retention problems surface immediately.
• 2027 benchmarks (Craft Ventures + Bessemer): <1.0 amazing, 1.0–1.5 good, 1.5–2.0 OK, 2.0–3.0 suspect, >3.0 bad, >5.0 restructure.
• Origin: David Sacks at Craft Ventures popularized it in Q3 2022, post-ZIRP, as the explicit replacement for the magic-number era of "growth at all costs."
• Why it won: ties directly to cash runway, harder to game than CAC payback, and survives investor scrutiny at every stage from Series A through pre-IPO.
• Three levers to fix it: cut burn (headcount discipline), grow net new ARR (pipeline plus win rate), or reduce churn (NRR improvements hit numerator and denominator at once).

The Math and Craft's Benchmark Bands

The math is intentionally trivial, and that is part of why it spread. Take net burn for the quarter — operating cash out minus operating cash in, ignoring financing — and divide it by net new ARR for the same quarter. Net new ARR is the change in your ARR base: new logos plus expansion (upsell, cross-sell, seat growth) minus churn (downgrades plus logo loss).

One number, easy to compute from any reasonably clean finance and RevOps stack, and almost impossible to obscure with accounting choices.

The benchmark bands published by Craft Ventures and corroborated by Bessemer's State of the Cloud 2024 are the de facto industry standard heading into 2027. Below is the table that shows up in nearly every Tier 1 board deck today.

The worked example everyone uses on the whiteboard: a Series B company burning $4M per quarter and adding $2M of net new ARR posts a 2.0. That puts them right on the bubble — not bad enough to panic, not good enough to raise easily. The same company two quarters later, after holding burn flat at $4M while growing net new ARR to $2.8M, sits at 1.43 — squarely "good." That is the entire reason this metric replaced everything else: a five-minute calculation tells the board exactly how much room the company has.

Why Burn Multiple Replaced Magic Number Post-2022

Before 2022, the dominant VC efficiency lens was the magic number (net new ARR divided by sales and marketing spend from the prior quarter, annualized). It worked in a ZIRP world where capital was effectively free and the only question was whether growth was reproducible. When rates moved and the IPO window slammed shut in Q2 2022, the question changed overnight from "is this growth repeatable" to "how long until you run out of cash."

Sacks published the burn multiple framework in his Q3 2022 essay "The Burn Multiple," and it spread through Tier 1 VC IC decks within two quarters. By the end of 2023, every major firm — Sequoia, Bessemer, ICONIQ, Insight, Tiger — had standardized on it for growth-stage deal memos.

There are three reasons it won, and they all matter for how you should run your business.

First, it ties directly to cash runway, which is the only thing a board genuinely cares about during a downturn. Magic number tells you about sales efficiency in isolation; burn multiple tells you how many quarters of growth you can fund before you need to raise again. That is the math the CEO actually has to manage to.

Second, it is much harder to game than CAC payback or LTV/CAC. Both of those are heavily dependent on assumptions — gross margin definitions, churn cohort selection, what counts as a "customer." Burn multiple uses two GAAP-adjacent inputs that finance can defend in any board meeting.

The denominator being net new ARR (not gross new ARR) means churn shows up in the metric instantly. You cannot hide a retention problem behind a great new-logo quarter.

Third, it survives across stages. Magic number breaks down at scale because S&M efficiency curves change. LTV/CAC breaks down at early stage because cohorts are too small to be meaningful.

Burn multiple works at $5M ARR and at $500M ARR with the same formula and roughly the same benchmark bands. That portability is why it has become the lingua franca of board-level efficiency conversations.

The 3 Levers to Improve It (and which works fastest)

There are exactly three ways to move burn multiple, and they map cleanly to the formula. Lever one: reduce burn. Headcount is 70%+ of operating expense at most SaaS companies, so this is fundamentally a hiring discipline conversation. Best practice in 2027 is a "VP review every backfill" policy — no auto-replacement of departed staff, every requisition justified at the leadership team level.

This is the fastest lever (visible in one quarter) but politically the hardest.

Lever two: grow net new ARR faster. This is pipeline coverage plus win rate plus deal size. The challenge is that it takes 2-3 quarters to show up in the burn multiple because pipeline cycles are long. Useful but not a fast fix.

Lever three, and the most underrated: reduce churn. This one hits the denominator twice. NRR improvement raises expansion ARR (numerator of net new) and simultaneously reduces churn (subtractor of net new). A company moving NRR from 95% to 110% can cut its burn multiple by 30-40% without changing burn at all.

This is why every Tier 1 board meeting in 2027 leads with NRR.

The realistic 2024-vintage Series B playbook looks like this: company is growing at 35% ARR year-over-year with a burn multiple of 2.8 (a typical number). The board sets a target of <2.0 within four quarters. The plan combines a 15% headcount reduction (lever one, immediate effect) with an NRR push from 95% to 105% (lever three, lands by quarter three).

Net new ARR holds roughly flat, burn drops 20%, NRR adds another 10% to the denominator, and the math arrives at 1.7 by quarter four. That is the template repeated across dozens of growth-stage boards right now.

Frequently Asked Questions

Burn multiple vs Rule of 40 — which matters more in 2027? Rule of 40 (growth rate plus FCF margin should exceed 40) is the public-markets lens; burn multiple is the private-markets lens. Public investors care about Rule of 40 because it is a profitability proxy. Private boards care about burn multiple because it is a cash-runway proxy.

At the crossover stage (pre-IPO), you need both to be healthy.

Should expansion ARR count in net new? Yes — that is the whole point. Net new ARR is gross new plus expansion minus churn. Counting expansion is what makes burn multiple a true efficiency metric rather than a new-logo metric, and counting churn is what makes it resistant to retention games.

What burn multiple do Tier 1 VCs expect at Series B vs Series C? Series B in 2027: target under 2.0, anything over 2.5 will draw scrutiny in the next round. Series C and beyond: target under 1.5, anything over 2.0 makes the round materially harder to fill. Pre-IPO: under 1.0 is effectively required.

Sources

1. Sacks, David. "The Burn Multiple." Craft Ventures, Q3 2022 — the original framework essay.
2. Bessemer Venture Partners. "State of the Cloud 2024" — burn multiple benchmarks by stage.
3. Meritech Capital. "State of SaaS 2024" — public-comp burn multiple analysis.
4. ICONIQ Growth. "Topline Growth and Operational Efficiency Report 2024."
5. Pavilion. "2024 GTM Benchmarks Report" — burn multiple by ARR band.
6. Craft Ventures. "The SaaS Metrics That Matter" briefing series, 2023-2024.
7. Sequoia Capital. "Adapting to Endure" memo, 2022 — early adoption of burn multiple at IC level.
8. OpenView Partners. "2024 SaaS Benchmarks Report" — efficiency metrics across 600+ private SaaS companies.